At the direction of President Obama, the U.S. Environmental Protection Agency released the Clean Power Plan, also known as 111(d) on June 2. It is the first time the U.S. government has sought to cut carbon pollution from existing power plants. In summary, by 2030, the EPA’s proposed steps should cut national carbon emission from the power sector by 30% – as measured against 2005 levels.
The proposal provides guidelines for states to develop plans to meet state-specific goals to reduce carbon pollution and gives them the flexibility to design their own programs. States can choose a mix of generation using diverse fuels, energy efficiency, and/or demand-side management. States can also choose to work alone to develop individual plans or with other states to develop multi-state plans.
Ultimately, as we look into our crystal ball, we see a large increase in the number of rate cases that utilities bring before their state’s Public Utility Commissions, and subsequent changes in the way utilities are regulated. We also see the following positive impacts for the solar and energy efficiency industries: Read the rest of this entry »
With the signing of Senate Bill 310 (SB 310), Ohio has become the first state to “freeze” its Renewable Portfolio Standard (RPS). Ohio Governor John Kasich signed the bill into law on June 13th, effectively halting the state’s mandates for efficiency and renewables until 2017. Come 2017, these mandates will pick up where they left off when the freeze occurred, as opposed to the annual increases in renewable energy and efficiency measures that would have occurred with the RPS.
SB310 will significantly harm Ohio’s solar industry by driving SREC prices down in both the Buckeye state as well as the surrounding states such as Kentucky, Pennsylvania, West Virginia, Indiana, and Michigan that sell their SRECs into Ohio. The bill faced tremendous opposition from health and environmental coalitions, as well as a group of 70 businesses and organizations, including Honda and Whirlpool, who urged Governor Kasich not to sign the bill.
Below, we have included excerpts from Sol Systems’ June 2014 Solar Project Finance Journal, which is a monthly email newsletter that our project finance team distributes to our network of clients and solar stakeholders. Our newsletter contains solar statistics from current real-life solar projects, trends and observations gained through monthly interviews with our solar project finance team, and it incorporates news from a variety of solar industry resources.
If you would like to receive our Solar Project Finance Journal via email every month, please email email@example.com with a request to be added to our Project Finance Journal distribution list. Read the rest of this entry »
The Public Service Electric and Gas Company of New Jersey (PSE&G) will begin accepting applications in less than a month, on February 25, for its Solar Loan program. While no major changes have occurred since the first solicitation late last year, data is now available on pricing from the first round of applications and awards.
The first solicitation of New Jersey’s PSE&G Solar Loan III program began last year and closed the period on November 12th, 2013. The program provides loans that make up significant portions of project construction costs (see an example here). The loans can be repaid through SRECs, with payment plans set at the closing of the loan. Cash can also be used to pay in case of low production. Once the loan has been paid in full, any SRECs produced thereafter belong to the owner of the system. The following capacities are available per each program segment:
At Sol Systems, we realize that our work is a reflection of who we are as individuals, and our success is a direct result of all the different personalities, passions, and talents that your employees bring to the table. Our team has expanded significantly in the last few years, and we are proud to employ some of the brightest talent in the renewable energy industry. On this employee highlight we have Andrew Gilligan, Senior Associate at Sol Systems:
What is your current position at Sol Systems?
I am a Senior Associate and help to lead our Investor Advisory Group. As part of this team, I assist renewable energy investors across the United States to successfully deploy capital into solar projects.
How has Sol Systems changed since you first started at the firm?
Since I started with Sol Systems in early 2011, the firm has undergone a lot of changes. Back then, we were a small start-up company only offering SREC solutions. Today, we have evolved to become a financial services firm that can help with any part of the capital stock for projects in all relevant US solar markets.
The City of Palo Alto Utilities (CPAU) has established various programs in the last few years to encourage solar development in the city. Despite space constraints that limit most projects to roof mounts and carports, the administration promotes two distinct initiatives designed to meet the statewide Renewable Portfolio Standard of 33% by 2015:
- Palo Alto CLEAN, a feed-in tariff program
- PV Partners Program, a rebate program that supports net energy metered (NEM) systems
On March 2012, CPAU launched the Clean Local Energy Accessible Now (CLEAN) program, in hopes to expand the production of cost-effective, clean local energy. This was an important step towards greater energy self-reliance, and for the city’s goal of supplying 33% of its electricity with renewable energy by 2015. The feed-in tariff pilot program was initially capped at 4 megawatts and it was targeted to medium-sized commercial rooftops with a minimum size of 100 kWs per installation. After opening the program for applications in April 2012, no applications were received at the initial rate of $0.14/kWh.
Renewable Portfolio Standards across the nation are under re-examination by state lawmakers, aiming to diminish or eliminate these programs. Despite benefits to local economies and environments, some politicians and lobbyists feel the programs are unimportant. To date, a number of proposals have reached State Senate and House floors throughout the country. Many lawmakers hold that RPS programs across the board create unduly costs for electricity consumers and taxpayers in order to support an industry that should be able to stand on its own. However, organizations funded by oil and gas interests like the American Legislative Exchange Council (ALEC), the Heartland Institute, and others have also played a strong role in fostering anti-renewables legislation across the country. Our company has been tracking the movement in many states and provides an overview of legislative progress thus far.
Maryland General Assembly on Track to Pass Legislation to Accelerate the State’s Solar RPS Requirement
Due to sun-setting Federal incentive programs for solar energy and the current structure of Maryland’s Renewable Portfolio Standard (RPS), Del. Sally Jameson (D-28) and Sen. Rob Garagiola (D-15) proposed legislation that attempts to address this concern. House Bill 1187 will accelerate the solar carve-out expecting utilities in Maryland to achieve the 2% solar energy generation requirement by 2020, instead of the current requirement of 2% by 2022. The belief is that the current standard will create a glut, or oversupply, of SRECs due to a higher annual increase in solar energy after 2016. This could distort supply and demand of SRECs, thus making the market volatile and less predictable. HB 1187 aims to provide stability to a potentially volatile market by “smoothing” out the growth of solar in Maryland.
HB 1187 does not increase the overall solar requirement for Maryland; rather it accelerates the achievement of 2% solar by two years (see chart below for comparison). Moreover, although from 2013-2020 there will be yearly increases in demand, as compared to the current requirements, the end goal and requirements for solar will not be affected.
|Energy Year||Current Requirements||Proposed Requirements|
The estimated benefits of this acceleration could not only create a more stable market with a steadier roadmap of SREC prices, but will also extend into the Maryland economy as a whole. Based upon industry information, HB 1187 could create over 10,000 jobs across the Maryland economy by 2018. Industry predictions state that the legislation could incentivize over $3 billion in investment and $144 million in revenue for the State as a result of job creation.
What does this mean for the ratepayer? The legislation was designed with a 1% price impact on the customer. HB 1187 anticipates a residential compliance cost of $0.19 per month and an average commercial electrical bill increase of 0.11%. However, the proposed RPS will actually create savings for the ratepayer when compared to the costs incurred from the current RPS schedule.
HB 1187 passed the House with unanimous support on March 21, 2012 and is currently proceeding through the Senate. After having initially failed the Senate Finance committee, SB 791 managed to pass through the committee 8-2 upon reconsideration during a vote late March 29, 2012. After a final lobbying effort by stakeholders and advocacy groups, SB 791 passed upon second reading in the Senate on April 2nd and will undergo its third reading tonight, April 4th, when it is likely to become law. Sol Systems will post an update as soon as more information is released on the status of the bill.
Sol Systems currently offers three types of SREC agreements for Maryland solar systems (both photovoltaic and solar thermal): Sol Brokerage, Sol Upfront, and Sol Annuity. Please email firstname.lastname@example.org or contact your solar installer for more specific pricing.
About Sol Systems
Sol Systems is a solar energy finance and development firm that was built on the principle that solar energy should be an economically viable energy solution. With thousands of customers and hundreds of partners throughout the United States, Sol Systems is the largest and oldest SREC aggregator. We provide homeowners, businesses, solar installers, and developers with sophisticated financing solutions that help make solar energy more affordable. Sol Systems also helps energy suppliers and utilities manage and meet their solar RPS requirements efficiently by providing them with access to diverse portfolios of SRECs. For more information, please visit http://www.solsystemscompany.com.
Sol Systems Issues Call for Solar Projects – Launches Project Finance Platform with $350 Million in Available Funding
Washington, DC: August 31, 2011 - Sol Systems today announced the launch of SolMarket, a new financing platform that will catalyze investment in solar energy projects nationwide by transforming how solar projects are financed. SolMarket launches with over $350 million of committed partner funds, actively seeking solar projects in need of financing.
SolMarket provides investors and developers with the tools they need to efficiently originate, evaluate, finance, and construct renewable energy projects. It provides a standardized origination platform, a document library, modeling software, and a standardized document suite. SolMarket will also offer developers group purchase discounts for solar modules and other equipment. There are no costs for developers to participate in SolMarket.
“We talk to hundreds of solar developers about prospective commercial and utility-scale projects, and unfortunately, many of these solar projects are never built due to an inability to efficiently locate financing,” said Yuri Horwitz, CEO of Sol Systems. “We have created SolMarket to help drive efficiencies into the solar market and connect investors and developers effectively. SolMarket will reduce the cost of financing transactions and enhance the tempo of solar project development.”
SolMarket has already attracted funding from a number of investors and is seeking projects ranging from 50 kW to multi-megawatts in size. Solar developers are encouraged to submit their projects prior to September 30th because investors are quickly building out their portfolios for 2011.
Sol Systems invites interested solar developers to attend a SolMarket webinar on Thursday, September 1st, Friday, September 2nd, or Tuesday, September 6th at 11 am EST. For more information, please email email@example.com or visit www.solmarket.com.
About Sol Systems
SolMarket is a wholly owned subsidiary of Sol Systems. Sol Systems is a Washington D.C. based solar finance firm, and the largest solar renewable energy credit (SREC) aggregator in the nation, with over 2,300 customers and over 20 MW of solar capacity under management. Through its SREC offerings, it has promoted the development of the solar market by providing long-term financing options for SRECs, facilitating over $100 million in solar development.
Ms. Sudha Gollapudi, Director of Strategic Partnerships
Many definitions of solar renewable energy credits (“SRECs”) say that an SREC is equivalent to one megawatt-hour (1,000 kilowatt hours) of electricity generated by a solar facility. While this is mostly true, it’s not always the case that 1 MWh of solar = 1 SREC. In order for an SREC to be created (or “awarded”), the system must receive certification from the state where that SREC will ultimately be sold – and the system must be registered with the regional transmission organization, such as PJM GATS or NEPOOL GIS. These organizations are the entities that acknowledge solar electricity production of 1 MWH and award the system owner with 1 SREC.
In other words, if a solar energy system is not registered with at least one state and registered with PJM GATS or NEPOOL GIS, the system may produce solar electricity without producing any SRECs. This is important because if no SREC is created, no SREC can be sold.
To further complicate matters, each state has different rules about retroactive SRECs — or how far back SRECs can be awarded. In select situations, SRECs can be retroactively awarded years into the past, whereas other circumstances only allow SREC creation from the state’s certification date forward.
Most often, systems are registered with the state in which they are located, but in certain circumstances, SRECs from one state may be sold into another state which has an open SREC policy and a higher price for SRECs. In cases where the SREC will be sold into a different state, the system must be registered in the state where the SREC will be sold.
In order to ensure that a solar energy system is producing SRECs, the system owner must complete various forms with one or more state agencies. This paperwork can be submitted by system owners themselves, or it may be done through the installer, or an SREC aggregator, such as Sol Systems — the nation’s largest and oldest SREC aggregator.
Once a system is registered and producing SRECs, the SRECs can be sold to entities that are willing to buy them.
Why would anyone buy an SREC?
Some states in the U.S. have created Renewable Portfolio Standards (RPS) that require energy suppliers and utilities to produce a minimum amount of their energy from renewable energy sources. These pieces of state legislation essentially create a marketplace for renewable energy at a premium price and thus stimulate the development of renewable energy markets. Some Renewable Portfolio Standards have specific provisions that require a portion of the electricity to come from solar (a “solar carveout”), and these states typically have strong solar energy markets and robust SREC markets.
When faced with an RPS with a solar carve-out, utilities have three options: build solar power facilities and produce the solar energy themselves, purchase Solar Renewable Energy Certificates (SRECs) or pay a Solar Alternative Compliance Payment (SACP) – a set price for each Megawatt-hour (MWh) of renewable energy they fail to acquire.
The price at which SRECs are sold is dependent on 3 market factors: supply, demand, and the level of the alternative compliance payment (ACP). Demand is driven by state RPS requirements and supply is driven by the number and size of individual solar energy systems which are certified to produce SRECs in a given state. In markets that are undersupplied, the ACP tends to set a ceiling price on the price of SRECs, so a state with a high ACP often leads to high SREC prices – at least until supply catches up to demand. Depending on the intersection of supply, demand, the level of the ACP, as well as the terms of the SREC contract – SREC prices can vary widely.
For more information about SRECs, please visit www.solsystemscompany.com.
Solar Renewable Energy Credit (SREC) markets are comprised almost entirely of solar photovoltaic generators. However, recent legal changes offer opportunities for solar thermal developers to participate in two of the country’s most lucrative programs.
As a background, a solar renewable energy credit is a tradable commodity like a carbon credit. However, unlike carbon credits, an SREC signifies the environmental attributes associated with 1 MWH of electricity, or its thermal equivalent, produced by a solar energy generator.
The value of an SREC is derived by a state’s Renewable Portfolio Standards (RPS). A RPS is a state-specific statute dictating that certain percentage electricity must come from renewable energy generators. Thirty-one states within the US have RPS statutes on the books. Of these thirty-one states, seven require a percentage of the renewable electricity production come from solar energy technologies (i.e. solar carve-out). These seven states also define a Solar Alternative Compliance Penalty (SACP), or the penalty a regulated utility or energy supplier must pay if they fail to acquire the dictated number of SRECs to meet the RPS. For example, energy suppliers in MD and DC must surrender $400.00 and $500.00, respectively, for each SREC they fail to acquire to meet the solar carve out defined within the RPS. The SACP functions as the price ceiling for an SREC market.
Currently, only a very small number of solar thermal generators participate in these SREC markets, because until recently solar thermal generators did not meet the definitional requirements of a solar energy generator within RPS statutes. However this is changing.
The SREC landscape for solar thermal generators is now open for system owners in MD and DC. Effective January 1, 2012, the Maryland RPS will allow solar thermal generators to earn SRECs. To earn SRECs in Maryland the following conditions must be met: (1) the system must be installed on or after June 1, 2011, (2) if the system is residentially owned, the facility must meet the Solar Rating & Certification Corporation’s (SRCC) OG-300 standards, (3) if the facility is commercially owned, the components installed must meet the SRCC’s OG-100 standards and an OIML certified meter must be installed to measure generation at the facility, and (4) the facility must be located within Maryland. To participate in the DC SREC market, (1) residentially owned systems must meet the SRCC OG-300 standards, (2) commercially owned systems must utilize components that meet the SRCC’s OG-100 standards and have an OIML meter installed to measure generation, and (3) pending new legislation, the facility must be located within the District.
In light of these recent legal changes, solar thermal developers can now participate in two lucrative SREC markets. In 2015 alone, the Maryland SREC market alone will have a ceiling value of over $100 million. Or, put another way, more than 195 MW-eq. of new compliance appetite is legislated in DC and MD over the next 3 years. To learn more about SREC options available to you, please visit www.solsystemscompany.com. As the country’s oldest and largest SREC aggregator, we can craft the solution that is right for you.
New Jersey, one of the nation’s largest and fastest growing solar markets, recently released the 2011 Energy Master Plan (EMP). The 2011 Energy Master Plan (EMP) is a 10-year non-binding proposal that lays out the energy agenda and guides legislators on energy policy decisions. The plan calls to reduce the 2016 Solar Alternative Compliance Payment (SACP) by 20 percent and then by 2.54 percent each year thereafter. Additionally, the EMP suggests lowering the Renewable Portfolio Standard (RPS) target to 22.5 percent of energy generated from renewable sources, down from 30 percent. The SACP is a fee imposed on electricity providers if they fail to meet their solar requirement established in the RPS.
Governor Christie claims that the previous ten-year energy master plan was unrealistic and that a more obtainable set of standards based on the current situation is needed. Christie is concerned about what the RPS, particularly the solar carve out is doing to electricity costs for the average New Jersey customer. Therefore, in this Master Energy Plan, Christie wants a cost-benefit analysis of the Solar Renewable Energy Credit (SREC) market in New Jersey created by the solar carve out. To this end, his EMP proposes reducing the SACP as discussed above. Governor Christie has maintained that the projected plan is not intended to lessen the role of wind and solar energy in New Jersey but rather to set a more realistic target for the next ten years.
Opponents of the plan claim that the previous RPS goal of 30 percent is realistic and contributed to the vast solar development in New Jersey. The solar carve out and SACP created one of the more robust SREC markets in the country. An SREC, or solar renewable energy credit, is a tradable credit that represents all the clean energy benefits of electricity generated from a solar electric system. Energy suppliers must procure a certain amount of solar-generated electricity, either through building their own systems or purchasing these SRECs, and so these SRECs became valuable. NJ system owners were able to sell SRECs and decrease their payback period on solar systems significantly.
With the increasing deployment of solar energy and continually decreasing costs in the solar industry, critics of Governor Christie‘s Energy Master Plan claim now is not the time to reduce solar goals. Although the EMP itself does not impact the current NJ RPS (actual legislation would be needed for that), the proposed EMP could undermine the state’s exceptional leadership in renewable energy development and may lead to doubts on the continuing success of New Jersey’s solar market. The New Jersey Board of Public Utilities (BPU), the lead implementing agency, will hold three public hearings in July and August before Christie issues his final plan.
Sol Systems is proud to welcome a new member to its team. Andrew Gilligan will be joining the company full-time beginning in late June as an Analyst and will be responsible for customer relations, state registrations, and providing research support on a wide variety of solar topics. Many of Sol Systems’ SREC customers and partners may have already had the pleasure of speaking to Andrew, as he has been an intern with the company for the past 4 months.
“A hard work ethic, leadership ability, and passion for the solar space are characteristics that are hard to find when searching for new employees,” said Yuri Horwitz, President and CEO of Sol Systems. “Andrew has all three traits and more. During the course of his internship, he has proved to be a valuable and committed employee and we are excited he will be joining us full-time. I’m confident our customers and partners will enjoy working with Andrew.”
Andrew comes to Sol Systems from Georgetown University, where he recently graduated magna cum laude with a degree in Science, Technology, and International Affairs and also a certificate in Business Diplomacy. While at Georgetown, Andrew spearheaded launching and running the Georgetown Solar Co-op, a student run organization created to ease the solar procurement process for homeowners. Under his leadership, the Georgetown Solar Coop educated hundreds of prospective customers on the benefits of solar, negotiated price discounts from solar vendors, led numerous homeowners through the solar procurement process from start through installation completion, and participated in local lobbying efforts for shaping the D.C. renewable portfolio standard.
Recent reports about both the domestic and global solar market have all pointed towards another year of remarkable growth. In fact, Bloomberg Finance identified Apple’s growth following the release of the iPad last year as the best analogy for the projected growth of the solar industry. Just a few days ago, the CEO of the Solar Energy Industries Association announced that the “solar is the fastest growing industry in America”.
With this incredible growth, it is useful to examine the key drivers behind the acceleration of the solar market. One key driver is the continuous reduction in PV cost, as prices for solar panels have declined by around 75% in the past 10 years. Solar panel prices in the U.S. specifically are set to drop by U.S. $0.20 per watt in 2011, bringing the average panel price to U.S, $1.40 per watt.
The second key driver is government policy and incentives. German and Japanese governments have been two of the leaders in the solar industry because they have legislated high incentives for solar deployment at the federal level. In the United States, however, state policies and utilities have played a larger role in growth, which has been impressive. In fact, the U.S. solar industry experienced a year-over-year growth of 67 percent. Furthermore, this growth is no longer simply due to California; over 16 states installed more than 10 MW in 2010. Solar Energy Industries Association (SEIA) CEO, Rhone Resch said, “the Mid-Atlantic region is beating California as the largest market in the U.S. for PV installations”.
Solar growth in the Mid-Atlantic and Northeastern region is due primarily to policies at the state level, which include both incentive programs and Renewable Portfolio Standards (RPS). These state programs award money to owners of solar systems to help offset the initial cost of the system. Renewable Portfolio Standards that include specific requirements for solar (i.e. solar carve-outs) mandate energy suppliers and utilities to generate or procure a certain percentage of electricity from solar or risk paying a steep Alternative Compliance Penalty (ACP).
Both measures have been effective, but solar carve-outs in the RPS represent a sustainable, market-based approach to solar financing. These solar carve-outs make Solar Renewable Energy Credits, or SRECs valuable, allowing solar system owners to realize the financial benefits associated with clean energy production. The percentage of solar electricity that energy suppliers must obtain increases each year until 2025 for most states with an RPS, guaranteeing that there will be a market for SRECs. Furthermore, an RPS is budget-neutral, and thus state governments do not have to worry about running out of funds prematurely, which has happened to several state solar rebate programs.
The Mid-Atlantic and Northeastern U.S. will have need for more than 3 gigawatts (GW) of new photovoltaic capacity by 2015, which is due in large part to these state solar carve-outs. The new capacity will be a mix of residential and business systems as well as utility-scale projects. Furthermore, with continued reductions in PV cost, there may actually be more solar deployment than is needed to satisfy the RPS. This makes the value of SRECs hard to predict in the short and long term; however, it does not change the fact that SRECs will remain an important piece of the solar financing puzzle for the next decade.
Looking forward, consistent and stable policies coupled with technical improvements will allow the solar industry to continue its remarkable growth.
Last Wednesday morning, I was lucky enough to attend President Obama’s speech at Georgetown University on U.S. energy security. The President has made this issue one of the top priorities for his Administration, and Wednesday he reinforced many of his goals and beliefs, while adding two new targets meant to improve the energy security of the U.S.
The central part of the speech was an analysis of U.S. dependence on foreign oil and ways in which that can change. President Obama listed natural gas powered vehicles, biofuels, electrical vehicles, and an overall decrease in oil demand as ways to reduce the amount of oil America has to import. Towards that aim of reducing foreign oil dependence, Obama revealed two new targets. First, by 2025, Obama wants the U.S. to have cut the amount of foreign oil imported by one-third. To put this in perspective, when Obama took office, the U.S. imported 11 million barrels of oil a day. Second, by 2015, President Obama is calling for all federal vehicles (around 600,000) to run on alternative fuel. President Obama defined both these targets as ambitious but achievable goals that would significantly increase American energy security.
President Obama also addressed the role of renewable energy such as solar in America’s future. He not only cited the environmental benefits of renewable energy, but also stated, “the nation that leads in the creation of a clean-energy economy will be the nation that leads the 21st-century global economy”. In a speech given to predominately college students, Obama urged young people not only to be more environmentally aware than previous generations but also to break into the clean energy industry in terms of future careers. Within the solar industry alone, there is a projected 26% increase in jobs over the next year. President Obama made it clear that growth in clean energy industries will be one of the pillars of an overall American recovery.
For anyone working in the renewable sector, Obama’s speech was familiar rhetoric. He has demonstrated his commitment to clean energy by requesting substantial funds in each of his budget requests and making a goal in this year’s State of the Union for “80% clean energy by 2020.” Given the federal government’s deficit issues, however, the renewable sector cannot rely on heavy government support despite Obama’s views. That is why state programs, and especially ones that are budget-neutral, become so important in making sure that the U.S. remains competitive in the clean-energy economy.
Renewable Portfolio Standards (RPS) are increasing as an important state mechanism and have demonstrated the ability to increase the deployment of renewable energy without costing state or federal governments millions of dollars. An RPS mandates that energy suppliers must procure a certain percentage of their electricity from renewable sources, and many states have specific solar carve-outs, which give value to Solar Renewable Energy Credits, or SRECs. An SREC is a tradable credit that represents all the clean energy benefits associated with 1 MWh of solar-generated electricity. These credits allow solar system owners to monetize their clean energy production, thus decreasing the payback period on a system and incentivizing more homeowners and businesses to go solar.
After the speech, I was able to talk briefly with Secretary of Energy Steven Chu who is very excited about the growth prospects for clean energy but still stressed the importance of continued innovations in solar panel production. It is certainly encouraging that the current Administration is embracing clean energy as a means to protect the environment and also increase energy security. However, it is still important to utilize programs like state RPSs to ensure that the clean energy sector grows at the pace desired by the Obama Administration.
When talking with potential customers at Sol Systems, it is often interesting to hear the diverging views on the benefits and drawbacks of selling Solar Renewable Energy Credits (SRECs) through spot market agreements or multi-year contracts. With spot market brokerage-type agreements, SRECs are sold every month or quarter for the highest current price. Long-term contracts (often called forward contracts) are when a solar system owner locks into a fixed price per SREC for a multi-year term.
A solar REC, or SREC is a tradable credit that represents all the clean energy benefits associated with 1000 kWh of solar generated electricity. Solar system owners can monetize these SRECs because energy suppliers must procure a certain percentage of their electricity from a solar source or pay a steep Alternative Compliance Penalty (ACP). Therefore, energy suppliers look to buy large sums of these SRECs for each compliance year and naturally will attempt to buy these SRECs at a low cost. However, energy suppliers understand that the SREC market, like almost any commodity market, can be volatile and subsequently the majority of energy suppliers hedge their risk by buying some SRECs through the spot market, and some SRECs through forward contracts.
Since there is good reason to believe that SREC prices will trend downwards over time, energy suppliers will typically be able to negotiate lower prices for the SRECs they are purchasing in multi-year contracts than the ones they buy on the spot-market. However, for various reasons, energy suppliers and utilities don’t typically meet all their SREC needs with multi-year contracts (perhaps they want some flexibility for their solar obligations in case SREC spot market prices drop dramatically or they plan to build solar power plants so that they can generate their own solar energy). Thus there are two distinct markets for SRECs: the spot market and longer-term agreements.
For an individual owner of a solar energy system, the decision of which market to enter is all about risk preference and their view of future SREC prices. Customers who are willing to accept more risk because they believe SREC prices will remain high are going to prefer a spot market solution, like the Sol Brokerage option, where Sol Systems acts as a broker and seeks out the highest SREC price. The spot market option allows customers to maximize their revenue from SRECs provided there is strong SREC demand in the market into which they are selling. Furthermore, it does not lock them into an agreement that will prevent them from taking advantage of an unexpected increase in SREC prices.
Other potential customers may be more risk adverse and would prefer for Sol Systems to take on the majority of the market risk. In that scenario, the customer may find it more appealing to lock into a fixed price per SREC, through an agreement like Sol Annuity, for the next 3 or 5 years. A fixed price allows clients to more accurately calculate their payback period as well as shifting risk away, even though they may be giving up some revenue per SREC.
However, in states like Pennsylvania and D.C., customers who entered into long-term contracts with Sol Systems several months ago will be receiving higher prices per SREC that those available on today’s spot market because the market in those states became oversubscribed. Thus in these examples, the multi-year contracts will actually maximize revenue over the course of the agreement. States like New Jersey and Massachusetts currently have very robust SREC markets and high spot prices, meaning many customers are likely to prefer Brokerage agreements because they can see those rates are higher than the Annuity prices. Yet, if those states follow the trend of DC and Pennsylvania and become oversubscribed, the solar REC price may drop substantially at some point.
For the individual customer, there is no “right choice” on how to sell SRECs. It truly depends on their risk preference and market outlook. However, for the SREC market overall, long-term contracts are more desirable because they provide stability, consistent volume, and liquidity. At Sol Systems, we have been able to enter into multi-year agreements with energy suppliers for the sale of SRECs, which has allowed us to become a preferred supplier instead of the supplier of last resort. This is important because it allows us to back up our contracts to solar system owners with agreements and provide them with reliable ways to ensure their solar energy investment pays off.
Early on Saturday, February 19th, 2011, the House passed its version of this year’s budget, which was highlighted by $61 billion in cuts from federal programs. The bill will now move to the Senate where there will likely be amendments and eventual compromise before President Obama signs the bill. Nevertheless, it is an interesting time to examine what this budget and drive to reduce the federal deficit means for solar financing and the solar industry in general.
President Obama has made it clear that, although his priority is to trim the federal deficit, he is not willing to sacrifice funding for clean energy research and development. For the 2012 fiscal year, Obama unveiled a $29.5 billion budget request for the Department of Energy (DOE), which includes $3.2 billion for the DOE’s Office of Energy Efficiency and Renewable Energy (EERE)– a 44% increase over the current appropriation. This request includes an 88% increase in funding for the solar EERE program specifically.
The budget passed by the House, however, is more aggressive in its attempts to reduce the federal deficit and would cut billions of dollars from federal energy and environmental programs. In particular, the Advanced Research Projects Agency-Energy, which invests in early stage and risky projects, would be hit hard. Similarly, the EERE would lose 35% of its budget relative to last year, a stark contrast to the White House’s plans. The budget would also cut funding for several DOE loan guarantee programs.
The Solar Energy Industries Association (SEIA) has characterized these cuts as “disastrous”. Currently, solar developers use the DOE loan guarantee programs to help finance solar projects at low interest rates, and these cuts could halt solar projects around the country. However, the chances of the House budget passing into law in its current form are very slim. Senate Democrats and President Obama will likely push back against dramatic reductions in the DOE loan guarantee program.
Despite the fact that House Republicans are currently proposing cuts to clean energy funding, it is important to highlight that a GOP Congress has historically supported solar. The first tax credits for solar were passed in a 2005 Energy Bill by a Republican Congress and later extended by President George W. Bush.
Both parties see the job growth opportunities in the solar industry. Solar employers expect jobs to increase by 26 percent over the next year, and lawmakers from both parties share concerns over the current U.S. unemployment rate.
It is important to note that no matter what happens with the Federal Budget, there will be states that maintain policies promoting solar deployment and allowing for job growth in the renewable energy industry. For example, more and more states are adopting a Renewable Portfolio Standard (RPS) that contains a solar carve-out requiring utilities to procure a certain percentage of their electricity from a solar source. These solar carve-outs create markets for Solar Renewable Energy Credits, or SRECs. An SREC is a tradable credit that represents all the clean energy benefits of electricity generated from a solar electric system. SRECs are a market-based mechanism that do not rely of state or federal funding, so SRECs will help system owners finance their solar energy systems regardless of federal cuts to clean energy programs.
The House resolution on the budget, although likely not to pass in its current form, would certainly be detrimental to the health of the solar industry, particularly the reductions in the DOE loan guarantee program. We hope lawmakers will recognize the job growth and economic opportunity that the solar sector represents, instead of seeing it as a way to trim government spending.
What Will Drive SREC Prices in 2011?
Most market participants are familiar with the three basic drivers of solar renewable energy credit (SREC) prices – SREC supply, SREC demand, and state solar compliance penalties. Most of this information can be found on RTO and state commission websites and analyzing this data yields an adequate view of the current state of the SREC market. However, to fully understand the 2011 SREC markets, a better understanding of the drivers of supply and demand is required.
SREC Supply Forecast:
The price of panels and installation will be an important input in determining the future supply of SRECs. Panel prices and installation margins have decreased considerably over the last year, especially on the East Coast. Cheaper panels and installation margins mean more development and increased SREC supply. However, 2011 will also see the disappearance of many state solar rebate programs. States like Ohio, Pennsylvania, New Jersey, and the District of Columbia are finding their coffers running low for state money to support solar projects. This means that new projects in 2011 will have to rely more heavily on the value of SRECs, which should slow development and SREC supply considerably. We have also seen new interest from traditional banks, particularly in large scale solar projects, which should bring down the cost of financing for large scale developers. Private high yield investors have now moved into the commercial and light commercial space, which means more money for these projects but at a pricey cost. Together these market effects will work to determine SREC supply in 2011. For example, will panel prices and installation costs fall enough to compensate for the termination of many state solar rebate programs? These questions will be important to answer before estimating additional SREC supply in 2011.
SREC Demand Forecast:
SREC demand is legislated by the renewable portfolio standards in each state. Consequently, demand would appear to be easy to determine. However, an increasing number of long term SREC contracts and energy suppliers with their own projects will mean that the demand that appears to be in a market could already be “spoken for”. Furthermore, with compliance entities in some states filing for force majeure, demand that should be in the market may in fact be pardoned. Even with all of these moving parts, demand is remains far easier to predict than supply.
Comparing Supply and Demand:
The standard interstate analysis of supply and demand will become more complicated in 2011 as SREC sellers in states with crumbling SREC markets look to cross state lines to sell their SRECs into other states. Determining the pace of those cross-registrations and the flexibility of the market to move those SRECs from one state to another, keeping in mind that some portion of those SRECs are locked into long term contract, will be important to determining the supply and demand balances in each state. Brokers have also added some complication to the market, as offers and bids are multiplied across the market and often give the appearance of significance amounts of demand or supply. Neither of which is healthy for a developing market.
Increased reliance by projects on SREC prices and increased scrutiny brought upon compliance entities to meet the RPS standards will both cause market participants to look more closely at RPS statutes to determine exactly what will and will not qualify in-state. Additionally, where SREC markets can no longer support solar development, the solar community will apply pressure to politicians to increase demand to support job growth in one of today’s few industries reporting job growth: solar.
In the end, the three primary market drivers will remain the same. But what is more important than today’s supply and demand are tomorrow’s. To get a clearer picture of those dynamics, one will have to combine a historic view of growth with the changing landscape ahead to arrive at any number of varied outcomes. After all, that is what makes a market.
Solar feed-in tariffs (FIT) have served as one of the primary policy tools for increasing the deployment of solar energy in several countries. Yet a recent ruling by the Federal Energy Regulatory Commission (FERC) makes the future of solar FITs in the U.S. uncertain.
A feed in tariff is basically a subscription program where the owner of a solar system can sell their electricity at a fixed rate to utilities. The utilities are required to purchase the solar electricity at this determined rate, which is higher than the normal wholesale electricity price. Feed-in tariffs, highlighted in places such as Canada and Germany, have the potential to be great for solar deployment because they guarantee a certain cash flow, thus minimizing the risk for those financing solar.
However, there also drawbacks to FITs. In the U.S., the success or failure of such a policy would depend on the ability of the state legislature to determine the correct fixed rate for solar electricity that incentivizes solar without oversubsidizing it. This fixed rate contract for purchasing electricity is more dependent on government funding and consistent political will than market forces.
Regardless of whether you agree more strongly with the advantages or the disadvantages of a solar FIT, it is important to note the FERC ruling on FITs this past year and its likely consequences. On July 15th of last year, the interstate electricity regulators at FERC affirmed the fact that they had exclusive authority over wholesale electricity sales.
The ruling was necessary because the California Legislature in 2007 established a feed-in tariff program for small combined heat and power systems in the state. Some utilities protested this program under the language of the Federal Power Act. FERC’s ruling was originally confusing, although seemed to support the belief that state legislatures are severely limited in their ability to mandate premium, fixed-price requirements.
This ruling was controversial and eventually led to a clarification by FERC in October 2010 that states do have the authority for certain feed-in tariffs when they set their rates through the Public Utilities Regulatory Act (PURPA). A spokesperson explained that since utilities may be mandated to buy power from different sources of electricity, a multi-tiered approach is admissible where states can calculate the utilities’ avoided cost for each separate electricity source.
Moving forward, it is unclear whether these FERC rulings will encourage or discourage more state FITs. Renewable policy experts have noted that the FIT structure allowed under these FERC rulings does not really resemble European FITs and has limited ability to dramatically increase renewable energy generation.
One of the options for FITs that FERC explicitly allows is for a state to establish a targeted range (for example for PV systems between 10 kW and 50 kW only), and let the market set the price. This is significant because it highlights FERC’s preference towards market solutions because they have the potential to be self-correcting and continually incentivize solar cost reductions.
A market solution for solar deployment that already exists is a solar “carve out “in a state’s RPS, which creates Solar Renewable Energy Credits or SRECs. Trading SRECs allows the market to dictate an appropriate price based on a state’s alternative compliance penalty and supply and demand factors.
Many U.S. states already have solar carve outs and healthy SREC markets. In fact, a FERC spokesperson indicated that Renewable Energy Credits (RECs) may be needed in addition a FIT to get to sufficient levels of renewable energy deployment. States previously considering FITs can look towards SRECs as a favored policy tool for enabling solar deployment and adopt legislation accordingly.
Solar Renewable Energy Credits, or SRECs, are a key part of financing solar PV systems, typically covering 20 to 40% of installation costs. Therefore, it is critical that solar installers, homeowners, and businesses be prudent when projecting future values of SRECs.
An SREC is a tradable credit that represents the clean energy benefits of electricity generated from a solar electric system. Each time the electric system generates 1000 kWh, a SREC is issued that can be sold or traded separately from the power. SRECs are financially valuable because many states have Renewable Portfolio Standards (an RPS) with specific solar carve-outs that require energy suppliers to incorporate a certain percentage of solar generated electricity into their portfolio. Most energy suppliers do not have enough solar capacity to satisfy the RPS requirements with their own power and subsequently must purchase SRECs to meet the state requirement. This allows owners of solar systems to trade their SRECs as commodities and receive payments for them.
SRECs have functioned as an important tool for making solar systems more affordable, and therefore SRECs are typically a significant part of the sales pitch that installers use when explaining the economic benefits of going solar. Furthermore, as state grant and rebate programs diminish, SRECs represent a bigger piece of the way to finance solar. For example, in Ohio and D.C., state funds for solar rebate programs are currently depleted, and homeowners must now rely solely on the federal tax investment credit, SREC payments, and energy bill savings to offset the cost of their system.
In many states, the RPS requirements (that make SRECs valuable) increase annually until 2025. This leads some people to assume that SREC values will also increase annually as energy suppliers will need to purchase more SRECs to meet the solar carve our requirement. However, this is not necessarily the case. The amount of solar capacity is increasing along with RPS requirements, which means that in most states, the SREC values are actually coming down. For this reason, installers need to be honest and careful when describing the future value of SRECs, so that customers do not have false expectations about the ROI of their solar energy system.
In addition to the RPS requirement, the two key factors in determining SREC values are the Solar Alternative Compliance Penalty (SACP) and SREC supply.
The SACP is a fee that a regulated entity must surrender in the event they do not procure a sufficient amount of solar electricity. This fee acts as a price cap because a rational energy supplier would not be willing to purchase SRECs for greater than this value. The SACP is defined on a state-by-state basis, and virtually every state has a declining SACP schedule. For example, in Ohio the SACP declines by $50.00 every two years. The SACP alone will not determine the value of an SREC, but a declining SACP schedule will push the maximum value of SRECs down over time.
The supply of SRECs in the market is another essential factor to consider when predicting future values. Naturally, if there is a surplus of SRECs, then SREC prices will come down. This dynamic has already happened in states such as Pennsylvania and D.C., and solar system owners that locked into a long-term fixed contract are receiving higher values than those trying to trade on the spot market.
Since there is a lot of uncertainty about the future of SREC values, installers should make it clear that SRECs are a commodity and that their pricing can be quite volatile. They should also help their customers make an informed choice about how to sell their SRECs that accommodates their tolerance for SREC market risk. Installers will find that customers who have a good understanding of the SREC market volatility may be willing to accept a lot of risk and enter shorter contracts because they are bullish on the future of SREC markets. However, others may be risk adverse, and would prefer to lock in a fixed price for their SRECs for 3, 5, or even 10 year periods.
As long as installers adopt a cautious approach when discussing SRECs with clients, customers will sort themselves along the lines of risk preference.
This morning I was speaking with a homeowner in western Massachusetts who had recently taken the plunge and invested in solar energy. Solar Renewable Energy Credits (SRECs) were on his mind. Specifically, he wanted information that would help him come to an informed and clear valuation of the SRECs generated by his system.
Due to the complexities of SREC markets in general and the peculiarities specific to Massachusetts, this homeowner’s interest in understanding how to value his SRECs is a refrain we at Sol Systems are hearing regularly.
Many homeowners are looking to understand the basic framework of the market; and in our mission to provide the resources to make solar simple for homeowners, we have prepared a summary of the major characteristics of the MA SREC market.. This summary will provide information geared specifically for residential system owners so they can make informed decisions on the monetization and valuation of their SRECs.
To begin, SRECs in Massachusetts are used by regulated energy suppliers and utilities to comply with the solar carve-out of the Massachusetts Renewable Portfolio Standard (RPS). For example, if NStar puts under contract 10 million megawatts hours of electricity in 2011 for delivery in 2011, and the solar carve-out for 2011 is set by the Massachusetts Department of Energy Resources at 0.10%, then NStar must purchase 10,000 SRECs (10 million MWH * 0.10%). In the event that NStar does not purchase sufficient SRECs to meet their compliance obligation, they are obligated to pay a penalty of $600.00 for each megawatt hour (1 SREC = 1 MWH of solar). The $600.00 penalty is defined as the Alternative Compliance Penalty (ACP), and this penalty effectively sets a cap on SREC values in Massachusetts.
Homeowners are eligible to sell their SRECs in a variety of ways. One option is to place the SRECs posted to their NEPOOL GIS account into the Clearing House Auction (NEPOOL GIS is a regulatory body that tracks each generator’s production, and mints SRECs to reflect the production). The MA Clearinghouse Auction is an online state-sponsored program that allows homeowners to deposit SRECs into an account in order to auction the SRECs at a fixed price of $300.00, minus a 5% administration fee (i.e. fixed price of $285.00). The Auction occurs once a year, no later than July 31. While the Clearinghouse attempts to create a price floor of $285 for the SRECs, there is no guarantee the SRECs will be purchased.
In the event a homeowner is interested in other options, the MA Department of Energy and Resources has compiled a webpage of market resources. The market resources lists companies, like Sol Systems that can assist homeowners in monetizing their SRECs.
Sol Systems offers customers in Massachusetts a variety of services that can meet their risk and reward profile, while also providing clarity on how to value their SRECs. For those interested in security, Sol Systems can offer a lump sum upfront payment for the sale of the rights to their SRECs. Or, for those interested in the most competitive pricing but little long-term security, Sol Systems can offer a 1-year brokerage service. Depending on the size of your system, the brokerage fee may be waived as well. Or, for those interested in a moderate valuation, Sol Systems also offers a utility-backed 3-year fixed price contract of $400.00 per SREC.
Sometimes homeowners express an interest in negotiating an SREC transaction directly with a regulated entity, and when I speak with people interested in doing this, they often recite their interest in “cutting out the middle man”. While this point of view might be valid (and possible) in some industries, it can lead to loss of value in the SREC space (in any case, most energy suppliers are not willing to negotiate with small system owners). On the other hand, established SREC aggregators (like Sol Systems) who represent thousands of customers can leverage their position with an energy supplier to secure more competitive pricing than would have otherwise been garnered through a one-off transaction between a very large entity and a homeowner with a small number of SRECs for sale.
District of Columbia Council Member, Mary Cheh, recently introduced one of the more important pieces of legislation the District’s solar community has seen in some time: the Distributed Generation Amendment Act of 2011. This bill sets a framework and goals for the District that will ensure the development of a robust solar community by creating jobs, providing a price hedge against rising energy costs, strengthening the local transmission grid, and producing significant localized environmental benefits.
The bill accomplishes these goals in two ways.
1. It increases the solar renewable portfolio standard (RPS) requirements for the District so that these requirements look more like the policies of surrounding states: Maryland, Delaware, and New Jersey. This sets up the long-term foundation for the solar community, and positions the District as one of the leading cities to attract and retain investment in solar.
2. It ensures that only solar systems actually located on the District’s distribution grid qualify towards DC’s RPS, or solar energy goals. This has the added effect of stimulating local economic development while ensuring DC reaps the many benefits of distributed solar energy.
What is a Renewable Portfolio Standard (RPS)?
A renewable portfolio standard is a state-legislated policy (in this case, the District’s policy) that requires energy suppliers to provide a portion of their electricity from renewable energy in a state. This means that for every unit of electricity provided to the district, a certain percentage must come from wind, solar, biomass, etc.
The District’s RPS has a specific requirement for solar, which means that for every unit of electricity sold, a portion (.04% in 2011) must come specifically from solar. Energy suppliers can meet this requirement by:
(1) Supplying solar electricity from solar systems they build, or
(2) Paying a solar energy system owner (like a homeowner) to supply it for them. This is accomplished by purchasing the solar renewable energy credits (SRECs), something akin to carbon credits, associated with the solar system. SRECs are key to making solar affordable and they are fundamental for making solar systems economical for homeowners and businesses.
RPS legislation like the District’s is now very common. Altogether, 36 states have a RPS or similar legislation and 16 states have a RPS with a solar carve-out similar to that in DC.
The Distributed Generation Amendment Act of 2011 makes some critical changes to the RPS that will ensure its effectiveness in the future.
Why is solar beneficial to the District of Columbia?
The District of Columbia currently imports almost 100% of all of its energy supply. Solar generation, and more specifically, distributed solar generation provides significant social, environmental, and economic benefits. Some benefits of local solar generation include:
- Increasing the stability and reliability of the distribution grid
- Reducing pollutants such as NOx and SOx
- Diversifying the District’s fuel sources
- Decreasing the price vulnerability District rate-payers incur by relying solely upon fossil fuel sources, which have significant variable costs
- Reducing the heat-islanding affects found in DC
- Reducing the demand for energy during the middle of the day, and specifically during the summer. This aligns with peak demand, and disproportionately offsets highly polluting “peaker” units
- Creating jobs in the District of Columbia
The Distributed Generation Amendment Act of 2011 bill forges the foundation necessary for sustainable industry growth for years to come, while creating many more local green collar jobs (over 600 have been created so far) and a significant revenue stream for the city through increased tax revenues.
What are the benefits of the legislation for a homeowner?
A residential system owner can save a substantial amount of money on their utility bills by installing a solar energy system, typically between 30-50% (or $400-800 annually), depending on the size of their system. Homeowners can also sell the green attributes associated with their energy production in the form of solar renewable energy credits (SRECs). The average homeowner can earn between $900-1800 annually by selling SRECs. Energy suppliers buy these SRECs to meet their RPS goals. This is why an effective renewable portfolio standard (RPS) is so critical for solar financing.
The Distributed Generation Act of 2011 provides homeowners and businesses with a significant economic incentive to go solar. The legislation creates a long-term and sustainable market for solar renewable energy credits (SRECs) which solar system owners can sell to energy suppliers. The legislation also ensures that the market for SRECs will remain stable and strong into the future, which will spur solar development and investment in the District.
For the District’s environmental community, this bill moves us towards a more sustainable future, while also creating jobs and helping local industry. It is well crafted, with significant support from the solar industry, and it is a piece of legislation worthy of community support.
If you want to help the District lay the foundation for a sustainable solar community and spur solar development in the city, we urge you to contact your DC council member .
Recent shifts in the political landscape indicate that Connecticut will be the next state to legislate a Solar Renewable Energy Credit (SREC) marketplace. A SREC marketplace allows solar energy system owners to trade their SRECs (the environmental attributes associated with 1 megawatt hour of solar electricity production) on a secondary market at a competitive price. Although Connecticut does not currently have a robust SREC market, the state has a Renewable Portfolio Standard with relatively ambitious targets and a newly elected governor who has voiced his support for solar.
Enacted in 1998, Connecticut’s RPS mandates that 23% of the retail electricity load come from renewable electricity by January 1, 2020. Renewable technologies in the RPS are differentiated into Classes 1, 2, and 3, with solar and wind electricity both being designated as Class 1 technologies. Electricity suppliers can comply with Class 1 annual requirements by procuring Renewable Energy Credits (“RECs”) from facilities located within the ISO New England area (i.e. Connecticut, Maine, Massachusetts, Rhode Island, Vermont, and New Hampshire). In addition, RECs from systems located in states outside of the ISO New England area, such as Pennsylvania and Delaware, are eligible for compliance purposes. If electricity suppliers fail to generate or purchase sufficient RECs to meet their renewable energy requirements, they must submit an Alternative Compliance Penalty (ACP). The current ACP in CT is $55.00 per REC or megawatt hour.
In the spring of 2010, Assembly Bill 493 was passed by the Connecticut House and Senate, but vetoed by former Governor Rell. This bill, “An Act Reducing Electricity Costs and Promoting Renewable Energy”, would have defined a specific requirement for solar energy technologies, and would have created a more stringent non-compliance penalty. If passed, the legislation would have increased the value of SRECs. Connecticut’s current Governor, Dan Malloy, has, in the past, voiced support for the passage of this legislation and stated that he would have signed the bill. However, to date, no solar legislation or discussion drafts are available for analysis.
As the solar topic continues to gather steam inside and outside of Connecticut, Sol Systems would like to note a list of provisions that will be central to any new future solar legislation in Connecticut.
1. The Alternative Compliance Penalty (ACP): The ACP largely determines the ceiling value for an SREC. A higher ACP can lead to higher SREC prices, resulting in a better payoff for those investing in solar energy. For example, neighboring Massachusetts is a state that has helped enact an SREC market by creating a $600.00 ACP; as a result, SRECs in Massachusetts are currently fetching prices between $275-$500.
2. System Eligibility: Currently, Connecticut is an “open market” meaning that it’s RPS allows Renewable Energy Credits (“RECs”) from a large region outside of Connecticut to be eligible for compliance. If new legislation retains this “openness” the SREC and REC values will likely be decreased, as was the case with SRECs in the District of Columbia. To ensure the integrity of a future market, advocates for solar in Connecticut should ensure eligibility requirements that would not lead to an oversupply of SRECs on the market.
3. The Solar Carve-Out Schedule: A solar carve-out schedule defines how much solar electricity must be produced each year, and therefore determines the demand for SRECs. To ensure the market is robust, advocates of solar should advance aggressive solar requirements, akin to states such as New Jersey and Maryland.
Sol Systems’ anticipates future SREC legislation in Connecticut, and will be working with other solar advocates towards advancing a robust solar future in the state.
About Sol Systems:
Sol Systems is a solar energy finance and development firm that was built on the principle that solar energy should be an economically viable energy solution. With thousands of customers and hundreds of partners throughout the United States, Sol Systems is the largest and oldest SREC aggregator. We provide homeowners, businesses, solar installers, and developers with sophisticated financing solutions that help make solar energy more affordable. Sol Systems also helps energy suppliers and utilities manage and meet their solar RPS requirements efficiently by providing them with access to diverse portfolios of SRECs. For more information, please visit www.solsystemscompany.com.
Many prospective solar energy owners are quick to notice that spot market rates for Solar Renewable Energy Credits (Solar RECs or “SRECs”) are typically higher than long-term SREC rates on the contract start date. For example, a person that owns a solar energy system in Delaware could sell a single SREC on the spot market for approximately $275 in December 2010, but if that same person wanted to lock-in at a 5 year SREC rate, she would only be able to get approximately $250 for each SREC produced between today and 2015.
This price difference sometimes leads solar owners to sell their SRECs on the spot market, particularly if they expect SREC prices to go up over time.
So, why would a solar owner choose to enter a long term SREC agreement?
The main reason a system owner would choose a long term contract is because they realize that spot market rates may not always stay high. These owners prefer to guarantee their SREC returns by locking into a fixed rate multi-year contract, which will give them long term security and a predictable source of income. If these system owners are correct, they will end up getting more income over time than they would have by selling their SRECs on the spot market.
But why are long term rates lower than current spot market prices?
There are a few reasons why multi-year contract rates are initially lower than spot market rates, and they relate to SREC buyers appetite to buy SRECs. Let’s start by considering the profile of an SREC buyer.
The ultimate SREC buyer is an energy supplier or utility that is subject to a state Renewable Portfolio Standard with a solar carve-out. These energy suppliers and utilities have the choice of:
(1) Building solar power plants and generating solar energy themselves
(2) Buying the environmental attributes of solar (SRECs) from independent solar energy system owners, or
(3) Paying an Alternative Compliance Payment (ACP) or a penalty fee for not meeting their legislative mandates
If these energy suppliers and utilities do not own operational solar power plants, they typically prefer to buy SRECs. If they want to buy SRECs they can do so by buying them on the spot market or they can enter multi-year agreements at a pre-determined price.
Most energy suppliers will hedge their bets by buying some SRECs on the spot market and some SRECs through multi-year agreements. However, in virtually all cases, these energy suppliers will contract for lower prices per SREC for multi-year agreements than they will pay on today’s spot market. There are a few reasons for this:
(1) They expect that they will not need to buy SRECs in the future. Why? They plan to build solar power plants and generate their own solar energy, so they won’t have to buy them from independent system owners.
(2) They expect that they can buy SRECs at lower costs in the future. Why? They anticipate that there will be more solar projects and that the increased SREC supply (http://www.solsystemscompany.com/faqs-recs-and-srecs) will lead to lower SREC prices.
(3) They want to wait and see what happens to requirements and prices in future years. Why? They expect that legislative changes may reduce or eliminate the requirement for them to buy SRECs.
In other words, energy suppliers themselves believe SREC prices will go down. Because of these expectations, energy suppliers are usually only willing to engage in multi-year agreements at reduced SREC prices. And these uncertainties are the very same risk factors that create SREC spot market volatility.
In summary, when choosing between the SREC spot market and a long term contract, a solar energy system owner should examine their appetite for risk and reward.
System owners who choose to sell their SRECs on the spot market get the reward of higher spot market prices today, but they are likely to face reduced or eliminated SREC values in future years. System owners who choose to sell their SRECs through long term contracts typically receive lower SREC rates today, but they get more certainty on their solar investment returns.
About Sol Systems:
As the largest and oldest SREC aggregator in the U.S., Sol Systems aggregates SRECs from independent solar energy system owners and sells them directly to energy suppliers and utilities through spot-market arrangements and multi-year contracts. Sol Systems operates in 13 states. For more information, please visit www.solsystemscompany.com.
When potential customers ask me about their options for selling SRECs, I explain that they have different options depending on their appetite for risk and their investment time horizon. Some of these potential customers then ask me “what will SRECs be worth in 3, 5, and 10 years?”
This is a very important question in determining the return on a solar investment, so I am always very careful to point out that there are many factors that determine the value of an SREC and these factors change over time, therefore the future value of SRECs is uncertain.
When I note the uncertainty about the future value of SRECs, many customers remark that they believe that the SREC values will go up. As a solar industry advocate, I certainly hope they are right, but I feel that it is my duty to explain the risk factors that affect SREC values.
I usually start by discussing Renewable Portfolio Standards (RPS), and I mention that SREC demand will go up in line with yearly RPS increases, but not necessarily the value of the SRECs.
Sometimes these customers, particularly those bullish on SREC futures, express interest in entering into a shorter-term SREC agreement, such as Sol Brokerage or our 3-year Sol Annuity contract because they fear that they will lose if SREC prices go up in the future. At this point in the conversation, I usually mention that SREC values will not rise (or remain stable) in perpetuity; instead prices will likely decline.
For example, in Pennsylvania and DC, we have witnessed a decline in SREC values on the spot market by 15% and 23%, respectively, over the last three months. In these cases, system owners that decided to “gamble” by selling their SRECs on the spot market (versus entering into a long-term agreement) have lost value in their SREC transactions – and have no guarantees on the future value of SRECs.
However, in explaining that SREC values can fall, I have noticed that some potential customers suspect we are misleading them, attempting to create doubt about SREC values in order to capitalize on our position in the market.
I now realize this is likely the first time they have heard the idea that SREC values will decrease. After all, many installers claim that SREC demand is going to rise exponentially (or stay constant) over time, and SREC values will be strong for 10, even 20 years (long after the system has been paid for) – which is a line of reasoning that helps installers close more sales.
In an attempt to be objective, I often provide details on particular provisions within a state’s Renewable Portfolio Standard (RPS). For Ohio, I may cite that the Alternative Compliance Penalty (ACP) is set to decline by $50 per SREC in 2012, and will decline another $50 bi-annually thereafter. Similarly, Maryland, DC, and New Jersey all have declining ACP schedules.
Sometimes this information strikes a chord with a customer, but in more cases, it becomes clear that the customer favors a short-term contract, such as our Sol Brokerage service. This is perfectly fine so long as they understand the risk factors, but I cannot help but conclude that it is easier to sell somebody what they want to believe, instead of trying to educate them on the inherent uncertainty of complex SREC markets.
The mid-Atlantic region has witnessed a rapid growth in solar installations over the past few years. While the large multi-megawatt commercial projects make front-page news, it is interesting to note that there is also vibrant growth in mid-size commercial projects, ranging from 50kW-500 kW. Today, the total capacity of solar installed in the PJM region (solar projects in the mid-Atlantic region) is 262 MW, of which 83 MW comes from systems in the 50 kW-500 kW range. Moreover, the mid-size commercial project segment has shown steady growth, adding approximately 26 MW each year since 2009.
Large solar projects face significant financing hurdles because millions of dollars of capital are required, but these projects also fetch the attention of large banks, energy suppliers and tax equity investors. Mid-size commercial projects face the daunting challenge of financing their projects with less visibility, but they can be successful if they make use of all the available incentives and financing tools.
Many mid-size commercial developers and installers can help the customer through the process for applying to federal and state grants; however, monetizing the Solar Renewable Energy Credits (SRECs) is often more difficult. SREC markets are complex for two main reasons. First, SREC markets differ across various states depending on the State’s Renewable Energy Portfolio Standard (RPS) and Solar Alternative Compliance Payment (SACP), the fee paid by energy suppliers for non-compliance of RPS requirements. Second, SREC markets have been known to be fairly volatile due to legislation changes and variations in supply and demand. These challenges can be mitigated by finding a stable partner with long-term SREC contracts who can help system owners navigate the legislation, and provide security of cash flow payments which allow system owners to accurately determine their payback period.
Investing in a mid-size commercial solar project is a sizeable investment for a small business owner or homeowner, thereby making it imperative to ask some difficult questions to the SREC aggregator or financier. The most important question to ask the SREC aggregator is: “Are your customer contracts backed up with energy supplier contracts?” If an SREC aggregator has long term contracts with energy suppliers, then the SREC firm has foresight into future SREC prices and can offer a fair, guaranteed rate. On the contrary, if an SREC aggregator is speculating on price and hoping to sell the SRECs in the spot market at a future date without any security of a long term agreement, their customer is exposed to a lot more SREC market risk. System owners should also be aware of the other factors that shape the SREC markets, like regulatory changes, rapid adoption of solar, and market shifts due to large-scale solar projects.
Being the oldest and largest SREC aggregator in the country, Sol Systems has matched a majority of its long-term SREC contracts with its energy supplier contracts, thereby providing the market stability and flexibility that mid-size commercial customers seek. Today, Sol Systems works with over 200 developers and installers in financing mid-size commercial solar projects. More information can be found at www.solsystemscompany.com.
When speaking with homeowners who have recently invested in solar energy, and who are considering how to manage the sale of their Solar Renewable Energy Credits (SRECs), a common question is, “how will my solar electricity be monitored and how do I earn SRECs?”
This simple question cuts right to some of the most complex and nuanced underpinnings of how SREC markets work and begs answers to questions like:
• How is solar electricity production monitored?
• How is this production reported to a solar Attributes Tracking Program?
• How is the reported generation verified as accurate?
These questions illustrate the complexity of SREC markets — particularly because the answers to these questions vary by state. It’s understandable that homeowners can be intimidated by the solar industry and SREC markets; however, navigating these complexities is possible.
Each state determines its own regulations for monitoring solar electricity generation for SREC production. These regulations may require an inverter, a solar meter, or a remote monitoring system. Depending on the system state, and the size of the system, vastly different reporting technologies are required.
Reporting provisions refer to how the solar monitoring data is transmitted to an Attributes Tracking System (such as PJM’s Generation Attributes Tracking System “GATS”) for verification and ultimately SREC production. Solar reporting provisions are also determined on a state by state basis. For example, in Massachusetts all monitoring data must be reported to the Massachusetts Production Tracking Systems (administered by the MA Clean Energy Center). For systems above 10 KW , the monitoring data must also be reported electronically though a remote monitoring system, such as Locus Energy. However, each state differs on these provisions as well.
Verification of reported monitoring data is the final step of the compliance cycle for SREC production, and is conducted by the Attributes Tracking System. The only exception to this rule is Massachusetts, in which the Production Tracking System verifies the reporting data and then transmits it to NEPOOL GIS on the system owner’s behalf. For all solar energy systems registered with PJM GATS, GATS verifies reporting data by comparing the data with its own internal models. If and when GATS determines the reported generation falls within boundaries of the projected modeled generation, GATS then awards the system owner’s account SREC value. In the event that the reported data is not within the bounds of the projected modeled generation, GATS follows up to verify the accuracy of the reported data. In the future, some states will be implementing independent verification steps to ensure that the reported data is accurate, and markets are operating efficiently.
Certainly, it can be challenging to understand and abide by the requirements of SREC monitoring, reporting, and verification; however, the benefit of working with an aggregator like Sol Systems is that we navigate these complexities on behalf of our customers. We understand these provisions, abide by them, and work with regulators on a daily basis. This means our customers can rest assured that they receive all the credit, and solar credits, for their solar electricity production.
The future value of Solar Renewable Energy Credits (SRECs) in any one state can be a contentious issue. People have different points of view regarding what the future holds in terms of (1) regulatory frameworks, (2) state and federal subsidies, and (3) the costs of solar energy technologies. Therefore, there can be very different conclusions on the value of SREC markets in the out-years. However, people interested in the future values of SRECs, like homeowners who are considering whether to invest in solar, should put these variables aside (as they are speculative in nature), and first analyze the Solar Alternative Compliance Penalty (SACP) schedules in their respective state.
The current and future value of Solar Renewable Energy Credits (SRECs), and SREC markets, is largely determined by a state’s Solar Alternative Compliance Penalty (SACP). Although the SACP schedule is not harmonized amongst states with SREC compliance markets, a common theme between many markets is a declining SACP that will likely lead to lower SREC values.
The Solar Alternative Compliance Penalty (SACP) is the fee a regulated entity must surrender in the event they do not procure a sufficient amount of solar electricity to meet their compliance obligation for their state’s Renewable Portfolio Standard (RPS) . An easy way to think of an SACP is as a price cap. If the SREC market functions properly, an SREC will not be traded at a price above the SACP, but can be traded at a price below the SACP. The SACP is defined on a state-by-state basis within the state’s RPS (or Alternative Energy Portfolio Standard for states like Pennsylvania and Ohio).
An SACP schedule is a schedule that defines the price penalties that a regulated energy supplier must pay if they do not generate or purchase enough SRECs to meet their compliance obligation. For example, in Ohio, the SACP schedule is as follows: the penalty per SREC in 2011 is $400.00, in 2013 the SACP is $350.00, in 2015 the SACP is $300.00, and by 2020 the SACP per SREC is $150.00. As indicated in this SACP schedule, the Ohio SACP declines quite precipitously over time.
The two main policy reasons for a declining SACP schedule are:
(1) To incentivize solar installers and developers to lower their installation costs. A decreasing SACP means solar developers must develop and install projects at lower costs to ensure profitability.
(2) To limit ratepayers’ exposure to electricity rate increases as RPS requirements escalate. The costs of meeting the Renewable Portfolio Standard can result in slightly higher electricity prices, which are sometimes passed onto ratepayers through rate increases. The declining SACP schedule ensures that rate increases are contained.
Although SACP schedules are not harmonized between states, pretty much all states with compliance markets have declining SACP schedules. For example: Ohio’s SACP declines by $50.00 biannually, starting in 2015, Maryland’s ACP declines by $50.00 biannually, and even New Jersey’s ACP is expected to decline by $35.00 between 2010 and 2012 and an additional $64.00 between 2012 and 2016. The one state without a declining SACP schedule, Pennsylvania, is now considering legislation in the state Senate that would dramatically reduce the state’s SACP beginning in 2011.
Although SACP schedules alone do not determine current and future SREC values, it is very clear that declining SACP schedules lead to declining SREC prices . As this occurs, long-term fixed priced SREC contracts , competitive with current spot market prices, become increasingly more valuable to the homeowner interested in investing in solar.
This last September, the U.S. Senate introduced the Renewable Electricity Promotion Act of 2010, Senate Bill 3813, a stand-alone Renewable Electricity Standard (RES) that will require sellers of electricity to retail customers to obtain certain percentages of their electric supply from renewable energy resources. If S. 3813 looks familiar, it should. The legislation is what remains of comprehensive climate change legislation that was introduced in the American Clean Energy Leadership Act of 2009 S.1462. This is therefore perhaps the last chance for any comprehensive federal approach to climate change or renewable energy prior to the next election.
So what does it mean for solar energy? In sum, it doesn’t hurt solar, but its immediate effects may not help much either. The proposed alternative compliance payment (ACP), which is the penalty energy suppliers must pay if they do not comply with their requirements is set low, especially when compared to current state RES programs such as New Jersey or D.C that have developed a foundation for a strong solar market. In addition, the portfolio of qualifying technologies may be too inclusive (by including numerous technologies the impact on any one technology is limited.
However, the legislation provides the framework, a seed of sorts, for the continued implementation and development of RES legislation nationwide. As RES markets develop nationwide, the solar industry can begin the task of adjusting to a more sustainable regulatory mechanism that is likely to help accelerate the implementation of solar technology (and others) well into the next decade. Our analysis is below.
What Does a Federal RES Do?
The federal Renewable Electricity Standard requires that a certain percentage of the electricity purchased in the country come from renewable energy resources. The purpose of an RES is to set up a competitive market in which utilities either (1) directly produce a specific amount of renewable energy based on their total load or (2) effectively purchase this renewable energy from others producing it or (3) pay a penalty. Most utilities will choose some combination of all three. In some state markets, an RES is called a renewable portfolio standard (RPS) or alternative energy portfolio standard (AEPS).
If utilities opt to go with the second strategy listed above, they usually do not purchase the energy from renewable energy resources, they simply purchase title to the “credit” associated with the renewable energy, termed a renewable energy credit (REC). Since energy can be measured in megawatt-hours (MWh), one REC represents the green attributes associated with one MWh of production from a renewable energy resource. Each time a homeowner or business produces one MWh from its solar system, it can sell the REC associated with this MWh in a competitive market. Technologies compete to produce RECs and sell them, and as these technologies scale, the supply of RECs increases, and the costs of these RECs decreases. The market is designed to drive down the costs of compliance and catalyze alternative energy technologies to scale.
CURRENT RES OVERVIEW
The RES targets are less than the twenty to twenty-five percent recommended by most industry groups and President Obama himself this last year. The current RES requirements are below:
The Alternative Compliance Payment
The Alternative Compliance Payment, which is the fee that electric utilities must pay in lieu of actually purchasing or producing the renewable energy credits required by the RES, is $21, adjusted for inflation. This means that for every MWH of electricity that the utility fails to supply from renewable energy, it must pay a fine of $21. The ACP effectively sets the ceiling on the value of renewable energy credits, with the caveat that there are multipliers (described below) that make some RECs more valuable than others.
Under the current RES, those resources include solar, wind, geothermal, biomass, landfill gas, qualified hydropower, marine and hydrokinetic renewable energy, incremental geothermal, coal-mined methane, qualified waste-to-energy, and potentially other technologies.
In order to incentivize certain technologies, states (and in this case the federal government) often provide multipliers for RECs from specific technologies or locations. Under the federal RES, utilities will receive double credit for RECs produced by renewable energy systems located on Indian land (to incentivize the development of renewable energy on Indian land) and triple credit for small renewable distributed generation less than 1 MW. Although not stated, it is likely that the maximum ceiling on energy efficiency credits will conversely reduce the value of RECs produced from energy efficiency upgrades.
The national RES will not preempt current state RES or RPS standards. Instead, the RES is meant to set a floor for states without current RES or RPS legislation to set up trading regimes and complement preexisting state legislation. The RES is a bit like the federal Clean Air Act or Clean Water Act in this respect, both of which provide states with a blueprint which they can either accept in whole, or mimic with state-specific standards that are as strict or less strict. This is incredibly important for those states that have more favorable solar requirements than the federal RES.
It is unclear at this point whether a national market will develop because of the legislation. Currently, the legislation provides for the delegation of responsibilities to either a national trading mechanism or a more regional mechanism. States will have to figure out whether they want their REC markets to be regional, like the Regional Greenhouse Gas Initiative (RGGI), or isolated, like Delaware, New Jersey, Massachusetts and others.
The value of solar renewable energy credits (SRECs) is typically a function of supply and demand . It is therefore unclear what the values of SRECs will be since this supply and demand will differ from state to state. Taken by itself, the legislation will not push SREC prices very high since the ACP is $21, with a potential multiplier of three ($63). However, current RPS states will likely retain their markets, and states without an RPS may develop more aggressive RPS legislation in light of the national RES.
1. The effective solar alternative compliance payment (SACP) is $63 per MWH for distributed solar energy systems (those below 1 MW in nameplate capacity). This is low enough that it is not likely to create a significant market for solar renewable energy credits (since the ACP provides a ceiling on the value of SRECs). This legislation is therefore unlikely to single-handedly develop robust markets for solar. However, as discussed below, the RES may provide the necessary legislative framework for the creation of such a market.
2. The list of qualifying “renewable energy resources” includes technologies that will be much less expensive to implement initially, and will likely flood REC markets. Solar energy, for example, is not likely to be able to compete with biomass or methane from mining.
3. Utilities can purchase energy efficiency credits. These credits are also likely to be much less valuable than SRECs, and may also flood the market – although they are limited to 26.67 percent of their overall required needs.
Setting up a national RES begins to set minimum requirements, build the framework for the introduction of renewable energy legislation that many states currently do not have in an organized fashion, and develop a sustainable means by which to incentivize renewable energy. RES legislation is especially important for new technologies that may have higher up-front costs (like solar) because requirements can be structured around these costs. Although the standards may not be perfectly structured to assist solar energy at this time, most RES legislation is tweaked over time to better suite solar energy.
The proposed federal RES is a good beginning, and provides a decent foundation for future legislation. Although it may not be perfect for solar initially, it forces legislators to address the important issue of alternative energy development, and provides them with a blueprint with which to do so. Our guess is that the requirements, and the ACP, will likely increase on a state-by-state basis. In the meantime, renewable energy is able to put itself on the map, and we’ve taken the first step of many in diversifying our energy infrastructure and moving towards a more sustainable future.
A Feed in Tariff or FiT, is a policy mechanism requiring utilities to purchase electricity generated from a certain source at a fixed rate (which is typically higher than average market electricity rates). FiTs are implemented as a means to encourage the development of renewable energy by balancing the cost between electricity generated from renewable and traditional energy sources. Although FiTs have been implemented in countries such as Germany and Spain around the world, the United States federal government has not enacted FiT legislation. Thus far, each state has taken different approaches to encourage the development of solar. Many U.S. states have opted for Renewable Energy Credit (REC) trading schemes while other states, such as Vermont and California have implemented FiTs. However, a recent ruling by the Federal Energy Regulatory Commission (FERC), threatens the future potential for states to implement FITs.
In March 2010, the California Legislature passed Assembly Bill 1613, which granted the California Public Utilities Commission (CPUC) the power to set and regulate the purchasing price of electricity produced from Combined Heat and Power sources (CHPs). The CPUC would have required utilities to purchase electricity at fixed rates for 10 years from all CHPs that meet environmental and efficiency guidelines and are under 20 MW. Utilities affected by the legislation pushed back, claiming that the CPUC could not set wholesale electricity prices, a right, they argued, reserved only for the FERC.
In mid-July, FERC responded to the controversy by issuing a ruling stating “setting rates for wholesale sales in interstate commerce by public utilities… [is] preempted by the FPA.” The ruling confirms that FERC has the sole authorization to set and regulate the wholesale sale of electricity and deals a blow to pending FiT legislation in other states across the U.S. While states are allowed to enforce fixed rates upon utilities purchasing electricity from renewable sources, these rates cannot exceed avoided costs. Avoided costs are typically lower than proposed FiT rates, which effectively defeats the intent of a FiT which is to promote renewable energy development through guaranteed premium rates.
A likely result of the ruling is that states interested in establishing and achieving targets for renewable energy electricity generation will continue to turn to REC trading schemes. REC trading schemes have proven to be effective at both providing substantial incentives for renewable energy as well placing safeguards against unreasonably high compliance costs for utilities. For more information on REC schemes versus Feed-in Tariffs, please read Sol System’s recent posting on the issue.
The International Energy Agency (IEA) recently noted that solar electricity could represent up to 20% to 25% of total global electricity production by 2050 based on their Solar Photovoltaic (PV) Roadmap and Concentrating Solar Power (CSP) Roadmap, which are meant to assist governments, industry and financial partners accelerate energy technology development and uptake. The report concluded that PV technology will become competitive globally by 2030 on the utility-scale in some of the areas with the best insolation given the right climatic factors. Further, the report indicates that PV has the potential to provide more than eleven percent of all electricity worldwide.
This analysis is good news for those of us in the solar energy space; however, the stated assumption is that governments, like the United States, will implement more concerted policies to facilitate solar energy. Even as some argue that solar energy will soon pass cost parity with nuclear energy, solar energy will likely remain at a competitive disadvantage to traditional fossil fuels unless governments implement policies that recognize the numerous positive externalities of solar energy.
One may wonder: is this political support likely in a country that has failed to pass a comprehensive energy bill? Are the key political drivers that change how our government engages and incentivizes the development of solar and other renewables changing? Will they in the future?
Answer: Almost certainly so. The political and economic interests that have prevented a significant comprehensive approach to solar energy and other renewable energies are changing, and will continue to change dramatically.
Perhaps the single largest driver for political change is the economic change that has taken place in this country in the last two decades. As detailed in a fascinating article in the Washington Post by David Callahan, the United States has moved from a country where thirty-seven percent (37%) of the wealth for the country’s top 400 individuals came from oil and manufacturing in 1982 to merely seventeen percent (17%) in 2006. An overwhelming number of the richest individuals (and the largest political contributors) now represent industries such as finance and technology.
The political implications of these changes are enormous. Currently, according to Open Secrets, an estimated 17.4 percent of all state and national campaign dollars come from the top 100 donors, a hugely disproportionate share. As the political clout of traditional energy wanes, the clout of other industries has grown.
As Callahan points out, although John McCain far outraised Obama among employees of energy and natural resources companies in 2008, pulling in $4 million from this group, Obama simply went elsewhere, and raised $25.5 million from the finance and technology sector. Similarly, he oil and gas industry has been a traditional source of GOP cash and was consistently among the top 10 sources of money for federal candidates for decades, according to the Center for Responsive Politics. In 2008, it moved down to 16th. The entire energy and natural resources sector gave $77 million in campaign donations while lawyers gave $234 million, more than three times as much.
Moreover, many of the individuals in the financial and technology sector are committed to renewable energy. Last year, for example, George Soros pledged to make $1 billion in renewable-energy investments and other billionaires, including Warren Buffett, Bill Gates, John Doerr and Vinod Khosla, are also investing in the sector. Companies are doing the same. Google recently became an independent power producer with the creation of its affiliate, Google Energy LLC, so that it could purchase renewable energy for its large data centers and also purchase energy futures to hedge against an increase in electricity prices.
To make things more interestingly, Google’s most recent purchase of wind energy was from NextEra Energy Resources. NextEra is none other than large utility Florida Power and Light, which changed its name in January of 2009 to better market its commitment to renewable energy. Other utilities, including Duke, First Energy, Pepco Holdings Inc. and others have all made similar commitments to developing renewable energy resources either through direct development, or by helping to finance other projects. Exelon Energy, for example, recently developed a 10 MW solar project called City Solar that will provide energy to over a thousand homes.
In sum, the economic constituency is shifting towards solar energy and other renewables, and so too will the political constituency. The new economy is producing a powerful group of companies and individuals that are committed to fundamentally changing the politics and economics of renewable energy; politicians, both Republicans and Democrats alike, will not be able to ignore this constituency.
The result is an emerging political consensus, among both Democrats and Republicans, traditional energy businesses and financial ones, that renewable energy resources like solar must be supported. This may be through a carbon cap and trade legislation, but more likely the proliferation of solar energy systems will occur through a more incremental approach such as a national renewable portfolio standard and economic incentives like solar renewable energy credits (SRECs). In either case, renewable energy will emerge in the next five years as a non-political issue, and our guess is that the required market incentives to ensure the success of solar energy and other technologies will be implemented.
Earlier this year, Connecticut state legislators Rep. Vickie Nardello and Sen. John Fonfara introduced an energy reform bill that was posed to change the Connecticut renewable landscape and establish a market for Solar Renewable Energy Credits (SRECs). Solar enthusiasts celebrated the potential of ‘Bill 493 – An Act Reducing Electricity Costs and Promoting Renewable Energy’ to reduce consumer electricity rates, create green jobs, and reduce CO2 emissions. It was passed in both the House and Senate, but was ultimately vetoed by Governor Jodi Rell when it reached her desk. The governor expressed her support of the intent behind the bill, but concluded that the proposed legislation would in fact increase electricity costs, estimating a $1.4 billion price tag for the bill that would be footed by Connecticut taxpayers.
The status of solar energy financing in Connecticut remains at a standstill with no SREC market in 2010 and limited state rebates. The Connecticut Clean Energy Fund, which provides residential system owners with a state rebate of up to $15,000, has reopened but will soon be fully subscribed. As a result, it is possible that many installers and developers will move into states with solar-friendly legislation including Massachusetts, New Jersey, and Ohio. However, there is still hope for renewable energy and green jobs on the horizon. Dan Malloy, a potential Democratic candidate for Governor, has publicly stated that he would have signed the bill if it had been his decision. The election will take place on November 2nd and if he is chosen to serve the highest office in the Nutmeg State he may be able to reverse Gov. Rell’s decision and forge ahead with a Connecticut SREC market.
On June 30th, the Delaware House of Representatives voted to pass an amendment to Senate Bill No. 119. The bill would strengthen the RPS requirement and increase penalties for non-compliance. Taken together, these measures will improve the growth prospects for the solar industry.
The legislation ramps up the amount of renewable energy required in Delaware from 20% in 2019 to 25% by 2025. The proposition also raises standards for solar energy, from 2.005% in 2019 to 3.5% by 2025. Short-term solar energy prospects in Delaware are addressed by increases in annual targets for solar that move to .2% by 2011 (previously .048%) and .354% by 2014 (.8%). The new targets ensure immediate incentives for the development of solar energy and will be seen as welcome news for regional installers and developers as well as Delaware homeowners interested in financing their solar energy systems.
The legislation has different effects on electricity suppliers in Delaware. The fine administered to utilities for non-compliance, known as the ACP, is raised to $400 per MWH (it was previously set at $250). As previously legislated under SB-119, a $50 increase in the ACP will be administered annually to non-compliant utilities.
A new provision in the amendment grants the State Energy Coordinator the authority to adjust the ACP by 20% “to determine reasonableness compared to market-based SREC prices.” Another new provision allows the solar requirement to be frozen if the total cost of compliance exceeds 1% of the retail cost of electricity. These amendments exhibit Delaware’s intent to provide more robust compliance incentives while also safeguarding against unreasonable increases in the cost of electricity.
The amendment to SB-119 is currently awaiting final approval from Governor Jack Markell who is expected to sign the bill this week. The amendment follows similar legislative changes in neighboring Maryland, which has recently expanded its renewable energy targets. Delaware’s proposed bolstering of the RPS is further evidence for the success of RPS programs implemented in several states across the mid-Atlantic region.
After several weeks of uncertainty, the New Jersey solar energy rebate program set a start date of September 1st, 2010 for the third funding cycle for solar energy systems. Known as the Renewable Energy Incentive Program (REIP), the program has been extremely popular with New Jersey homeowners looking to take advantage of the state solar incentives. In the previous round of funding in April, 2010 more than 1,000 applications were received within the first week – despite the fact that incentives had been lowered from $1.75 per watt to $1.35 for residential installations. The popularity of the program caused a delay in the new round of funding which was finally confirmed last week.
The current cycle of funding will offer $0.75 per watt in incentives limited to the first 7.5 kW of solar installations. Excluded from funding eligibility are commercially owned systems as well as all systems over 10kW. The current rates mark the lowest incentive offerings by the REIP since its inception.
Overall the REIP program has been very successful in making solar energy more affordable. However, as REIP incentives are scaled down and applications for incentives are backlogged, homeowners interested in installing solar energy are relying more heavily on SREC income to finance their solar energy systems. New Jersey SRECs remain the most valuable in the country and as state incentives decrease, SRECs will play an even larger role in making solar energy affordable to homeowners across the state.
Currently, NJ homeowners and businesses interested in SREC financing have three different options to monetize their SRECs, each of which are available through Sol Systems: multi-year fixed-price contracts (Sol Annuity), upfront payment for SRECs (Sol Upfront), and a short-term market-based option which allows owners to sell SRECs at their current spot-market value (Sol Brokerage).
For more information on Sol Systems products, please click here. For more information on solar energy rebates and incentives in the state of New Jersey, please visit the Database of State Incentives for Energy and Efficiency.
Sol Systems Chief Executive Officer, Yuri Horwitz, will be a panelist in Earth Shot Foundation’s conference regarding solar best practices in the Mid-Atlantic today. The conference is part of Earth Shot’s Terranaut Almanac Series, a gathering each month in Washington DC, Boston, and San Francisco to explore issues revolving around energy, economy, and environment. Government, non-profit, and industry leaders from California, New Jersey, Washington DC, Maryland and other states will be participating in the roundtable.
This event assembles industry and policy leaders from the region, and nationally, to discuss the future of commercial and residential solar at the state, regional and national levels. Participants will discuss and debate best practice for RPS goals and solar carve-outs (commercial/residential), net-metering and interconnection, state policy/funding impact, project finance and net levelized costs of energy, policy successes (and challenges), and a strategic roadmaps for the region.
Mr. Horwitz will be focusing on Sol Systems’ experience helping to develop, implement and work within the framework of state RPS legislation, as well as his experience and knowledge of some of the more significant issues facing the 200+ Sol Systems’ Partners in the solar space.
This week, the Pennsylvania House of Representatives will review the Clean Energy and Jobs Bill (HB-2405), a proposed amendment to the Alternative Energy Portfolio Standards Act. The bill includes a solar carve-out, which would mandate an Alternative Compliance Payment of $450 in 2011 for utilities that do not meet solar output requirements. The newly proposed solar carve-out would raise the required solar component of Pennsylvania’s RPS from .5% to 3% by the year 2025. The proposed bolstering of PA’s solar carve-out mirrors recent legislative changes in New Jersey and Maryland that mandate a solar RPS component of 2% or higher. The net result will be greater financing incentives for Pennsylvania homeowners and small businesses looking at solar energy, as well as a stronger platform for installers located in Pennsylvania looking to include SREC values in their sales.
Under HB-2405, Pennsylvania’s RPS would cease to accept SRECs from solar systems located outside PA but within the PJM region. If passed, this component of the bill would be detrimental to out of state homeowners and businesses looking to take advantage of PA SREC income to defray the high installation costs of solar energy. The bill also adversely affects regional developers who incorporate the value of PA SRECs into the financing of solar energy systems located outside the state.
Sol Systems will continue to monitor and provide updates on HB-2405 in the coming weeks.
Solar feed-in tariffs or FiTs and Renewable Portfolio Standards both work to increase the output of renewable energy, but each regulatory process differs in function. With an RPS, utilities are obligated to generate a percentage of their annual energy supply from renewable sources or else purchase Renewable Energy Credits on the open market to fulfill this requirement. If they do not meet the RPS, these suppliers face an Alternative Compliance Payment higher than the market price of RECs. On the other hand, FiTs mandate that all renewable energy generated each year must be purchased by utilities and at high prices that work towards establishing grid parity. This is achieved when the cost of producing renewable energy is less than or equal to the cost of grid power.[i] Establishing a national RPS is a better option for the U.S. because FiTs have created less-than-desirable consequences in foreign economies and in the solar energy market as a whole.
The United Kingdom recently adopted a FiTs policy, establishing a rate of $53.50/kWh of electricity generated (for a typical 4Kw system) and a rate of $4.35/kWh of surplus electricity that is exported to the national grid.[ii] Wayne Morris of RenweableEnergyWorld.com even suggests an average rate of return of 10% for homeowners who enter the program.[iii] But consumers who do not own a solar system and have not opted into the program will pay a higher electricity bill each month as the increase in energy rates are passed on to them by utility companies. Some cities in the US have adopted the European-based policy, beginning in 2009 with Gainesville, Florida. The policy in Gainsville established a 25% premium over the subsidies the city formerly offered and utilities estimated the program would increase the average homeowner’s electricity bill by 74 cents per month[iv].
The risk of boom-bust cycles is another reason that a national RPS is superior to FiTs. Germany was the original FiTs success story, and in 2009 these subsidies helped increase the country’s total solar capacity by 60%[v]. Unfortunately, the aggressive government subsidies created artificial growth and when these subsidies were taken away last January, the solar bubble burst. A national RPS will promote organic growth in the domestic solar industry as opposed to its regulatory cousin FiTs.
[i] Wikipedia.com “Grid Parity” Website <http://en.wikipedia.org/wiki/Grid_parity>
[ii] Renewable Energy World.com “Solar feed in tariff announced” Website <http://www.renewableenergyworld.com/rea/partner/big-green-company/news/article/2010/03/solar-feed-in-tariff-announced>
[iii] Renewable Energy World.com “Solar feed in tariff announced” Website <http://www.renewableenergyworld.com/rea/partner/big-green-company/news/article/2010/03/solar-feed-in-tariff-announced>
[iv] Galbraith, Kate,“Europe’s Way of Encouraging Solar Power Arrives in the U.S.” New York Times <http://www.nytimes.com/2009/03/13/business/energy-environment/13solar.html>
[v] EthicalCorp.com “Feed-in tariffs: Solar energy bubble is FiT to burst” Website <http://www.ethicalcorp.com/content.asp?ContentID=6901&newsletter=24&utm_source=http://communicator.ethicalcorp.com/lz/&utm_medium=email&utm_campaign=EC%20News%2018%2005%2010&utm_term=Growth%20and%20CR,%20Japan%20briefing,%20award%20winners%20in%202010,%20and%20tackling%20kickbacks%20in%20China&utm_content=178429>
As reported in an article featured in the Baltimore Business Journal, Sol Systems has worked closely with the rest of the regional solar community to successfully pass historic Renewable Portfolio Standard (RPS) legislation in the state of Maryland. Senate Bill 277 (SB 277) has two significant impacts on the state’s goals for renewable energy. Most importantly, the bill ensures a vibrant Solar Renewable Energy Credit (SREC) market in Maryland, which will greatly expand the opportunities and incentives for solar energy investment.
SB 277 accelerates the required amount of solar energy electricity suppliers must purchase to comply with the state’s Renewable Portfolio Standard. This accelerated solar-carve out in Maryland requires a rapid growth in solar energy within the state of Maryland in the next five years. By 2012, in-state solar energy must grow by approximately 450% of current capacity levels in order to meet the new targets set in SB 277.
Additionally, SB 277 ensures that the alternative compliance payment (ACP), a fee that energy suppliers must pay for non-compliance with the solar RPS, will not be reduced over the next four years. This change is equally important for the continued success of the solar RPS since it acts as a ceiling on the price of solar renewable energy credits SRECs. In Maryland, SRECs are often the cornerstone for financing solar energy projects. By maintaining the ACP, the state has ensured that SREC prices are not artificially depressed (as under the previous ACP configuration) and prices can now move with the market as supply and demand shift or fluctuate.
Sol Systems is proud to have participated in petitioning the state to move forcefully towards a clean energy future. Sol Systems also worked with other businesses, including Skyline Innovations, to broaden the solar energy carve-out in Maryland to permit solar thermal energy to qualify. We believe that if solar thermal energy is displacing electricity produced by coal, natural gas and oil, then these systems’ clean energy attributes have the right to be monetized through SREC production.
Sol Systems will continue to push for common sense solar solutions for citizens of Maryland and across the country. It is part of our mission to make solar energy simple and affordable for all.